Shareholders of tax software company Avalara are fighting a motion by the company in Washington federal court to stay litigation accusing it of misleading investors ahead of an $8.4 billion deal to take the company private.
Martin Sohovich and other investors said in a brief filed Thursday that Avalara Inc. "cannot cite a single case" to show why the proceedings should be paused while it fights a state court case. The court should reject the company's argument that a stay is warranted in the case until breach of fiduciary claims in a similar case, Pipe Fitters Local Union 120 Pension Plan and Suzanne Flannery v. Scott McFarlane in the Washington Court of Appeals, have been resolved. McFarlane is Avalara's CEO.
Avalara's arguments "inappropriately presume that any overlapping issues should be decided in the Pipe Fitters case," instead of the Sohovich case, even though the former case was filed three months after the Sohovich one, the investors said in their brief.
The argument over the stay follows U.S. District Judge Marsha J. Pechman's decision to allow the proposed Sohovich class action accusing Avalara of misleading investors ahead of the deal to take the company private.
Judge Pechman in September issued an order primarily denying the defendants' renewed dismissal motion after the Ninth Circuit revived some of the suit's claims in March.
She had thrown out the suit last year, declining to give Sohovich another chance at amending the suit that accuses Avalara of downplaying its future profitability to win investor approval of its $8.4 billion buyout by investment firm Vista Equity Partners Management LLC in 2022.
The appellate court revived the suit's claims that Avalara misled investors by omitting that inorganic growth was not included as part of the company's valuation and that the defendants cherry-picked positive information from a report issued by Institutional Shareholder Services about the acquisition.
Judge Pechman agreed with the Ninth Circuit that the exclusion of inorganic growth from future revenue projections in Avalara's valuation was material to investors. According to the order, the complaint included "substantial allegations" that "Avalara had always included inorganic growth in its guidance, and when it did not, it 'explicitly stated as such.'"
Avalara had argued in October that a stay of the investors' case is warranted because of certain issues that have arisen from Pipe Fitters. Both the Sohovich and Pipe Fitters cases arise from the same underlying dispute — whether Avalara was undervalued in its sale to Vista at $93.50 per share.
Both issues also are brought on behalf of Avalara shareholders against virtually the same defendants and ask for the same relief, according to the company's motion to stay.
"The factual and legal issues in Pipe Fitters fully encompass the remaining issues in this case, which have been narrowed to two challenged disclosures in the proxy for the transaction," Avalara argued. "As such, a resolution of Pipe Fitters will significantly simplify— and likely entirely resolve — the claims that remain in this case."
On Thursday, the investors urged the court to deny the motion to stay, saying that Avalara failed to provide any past litigation that would justify granting it.
"Defendants cannot cite a single case holding that any argument they raise is relevant where a federal court holds exclusive jurisdiction over a cause of action, the parallel state case asserts a different cause of action with different elements, and the federal case is first-filed," the investors said.
Representatives of the investors and Avalara didn't immediately respond to requests for comment Friday.
The investors are represented by Tamar A. Weinrib and Jeremy A. Lieberman of Pomerantz LLP and Duncan C. Turner of Badgley Mullins Turner PLLC.
Avalara is represented by Christopher B. Durbin, Shannon M. Eagan, Patrick E. Gibbs, Ziwei Xiao and Taylor Boyle of Cooley LLP.
The case is Martin Sohovich v. Avalara Inc. et al., case number 2:22-cv-01580, in the U.S. District Court for the Western District of Washington, Seattle Division.
Oct 24
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